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One of the first things about 1031 exchanges s that it's intended for investment properties,
Also, one of the other "biggies" is that it needs to be like- kind property ... As a matter of fact the name for this (which is under section 1031 of the IRC) is "Like-Kind Exchanges"
So rental property for rental property is fine
Grocery store for grocery store is fine, etc.
Here's how the IRS puts it:
The exchange can include like-kind property exclusively or it can include like-kind property along with cash, liabilities and property that are not like-kind. If you receive cash, relief from debt, or property that is not like-kind, however, you may trigger some taxable gain in the year of the exchange. There can be both deferred and recognized gain in the same transaction when a taxpayer exchanges for like-kind property of lesser value.
I thought I saw you come into the chat, but while I'm waiting, Ill go ahead and try to address the rest of your question
I also have a home equity loan that I used to fund some expenses and original interest loan for the property
What happens when you do a 1031 exchange (especially a clean, easy one where your "buying up "... buying a more expensive property) is you are deferring the capital gains ... the basis for the first property essentially follows you into the next property
I was going to build after a year but didn't.
I think you're fine here, as long as it's investment proptery
But yes if you contribute you are just adding to the basis, so that when you finally sell there won't be so much gain
But it would probably be part investment 11 acres and the other portion of it is a home on .5 acres (that possibly we would live in). But the land we may raise cows or alpacas.
Does it matter if we live in it or do we have to rent it out
That gets iffy then ... the whole idea is that BOTH properties are used exactly the same ... AND ... both have to be either , in the words of IRS, "Business or investment Properties"
Residence will not work
Here's the IRS guidance on it: http://www.irs.gov/uac/Like-Kind-Exchanges-Under-IRC-Code-Section-1031
Also here's one of the best, XXXXX XXXXX I've seen on how it works: http://www.expert1031.com/1031facts/articles/crej051706.html
This is from the page I linked for you (from IRS):
Who qualifies for the Section 1031 exchange?
Owners of investment and business property may qualify for a Section 1031 deferral. Individuals, C corporations, S corporations, partnerships (general or limited), limited liability companies, trusts and any other taxpaying entity may set up an exchange of business or investment properties for business or investment properties under Section 1031.
I think your idea works, generally, if you separate out the residence portion as a different lot, and buy that in a separate transaction
Also, maybe if I rent it out, right?
sure, not it's a rental
You would be claiming that the initial was investment property also
sorry, typo, sure THAT'S a rental
ohh well its not its graded land wo a house yet
so that would not work, uggg
so sorry .. its gotta be like-kind
so basically it would have to be land for land
that definitely works
as long as , at the time, its both "investment property"
so would anything else work
Again, you just have to satisfy the criteria that it's a LIKE-KIND exchange ... I just had a grocery store owner do it for a larger store... saved her a huge amount of capital gains taxes (rather than selling at a large gains)
so if i sell this land and I put it into this specific property then I would immediately have to pay capital gains minus my deductions right?
all it really does is defer your gain on sale of the original property ... if you end up gong int a larger property them SOMEDAY, unless you do it again you'll have a REALLY large gains
If just just sell witht doing the exchange, yes
what is the rate of tax for capital gain or does that depend on total income for that year, or do you pay title when you close
If you get what's called a qualified intermediary, so that you don't take constructive receipt of the money and follow all of the 1031 exchange rules ... there'll be NO capital gains ... NOW ... the "dream" is that you keep doing it until you leave it to an heir and they get the step up in basis when you die and NObdy pays the gain :)
The cap gain is figured on shcedule D of your 1040 for the tax year of the sale
uggg... that would be 18.8% for us
Yep, that's why the 1031 exchange can be so attractive
wowee....ok that is very informative....i guess i should find out what i should really be doing if i sell land but I dont want to buy other land
Definitely step 1
By the way, here's an excellent site for diggin into the particulars of 1031 exchanges
ok thank you i guess you have answered everything
You very welcome ... remember, that it just has to be investment or business property (real-estate is real-estate, for example, and a business piece of equipment can be used in an exchange with a truck used for business as well ... it's that residence piece you mentioned that's the rub
And again, here's the IRS guidance on it: http://www.irs.gov/uac/Like-Kind-Exchanges-Under-IRC-Code-Section-1031
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ohh....but again if I rent it out which may be unlikely that is business
but i would do it if i had to
you were great
Better said, it's investment property
thank you so much!
"For Lane Only"
I forgot to confirm this:
If I chose to purchase the unlike property, the amount of capital gains would be based on the sale price minus my expenses incurred on the land while it was investment property or would they be based solely on the sale price of land>
Thanks for asking for me...The capital gain is always charged at the time of sale (what you choose to do with those sales proceeds is really an unrelated issue)The gain is charged on NET sales price (you can deduct sales commission and other selling costs from the sales price) ... MINUS ... your basis in the property (which would be your original purchase price PLUS any improvements to the property)The only time that sale gets related to some future purchase is when you want to do the 1031 exchange and swap the properties to defer the gain.Make sense?